What to do if seller cheats you with project token money?

Any property that fits the bill for you as a buyer will require you to pay some token money to the seller to book it for you.

What is a token money?

Token money is the amount given by a buyer to a seller to prove his commitment towards buying a property. This act reinstates the fact that the buyer is genuinely interested in buying the property and books it by giving the token amount. This symbolic payment acts as a go ahead for preparing legal documents related to property registration and home loan for the purchase. 

While the name, token money may seem to be small amount, it is still a significant part of the deal. It is generally 1% to 5% of the total value of the property. Although, there are risks involved, the biggest being what if the seller runs away with the token money? In this guide, we will find out options what to do in such a situation. 

How is a token money paid?

Also known as Bayana, the token money is paid to a third-party ESCROW account until the complete property transaction is done. 

It works in favour of the buyer as there is a record of the token money being paid. A notarised document will include token money details, such as the amount paid by the buyer to the seller and the refund of the token money (in case the deal gets cancel). It will also outline the payment conditions for the property purchase.

Once, the token money is paid, the next step is to sign a sales agreement by the seller and the buyer and culminate the property purchase transaction. In case the points mentioned in the legal document are not honoured by the buyer or the seller, the deal may get cancelled. The token money may be refunded based on terms mentioned in the notarised document. It is legally valid for a seller to keep a part of the token amount and refund the rest if a buyer backs out of the deal. 

What to do if a seller runs away with token amount?

Filing case in civil court

• A buyer can file a legal case against the seller. 
• Provide evidence of the agreement and the amount payment. 
• In case of no evidence of written note, it may be difficult to prove that the seller is guilty, and the buyer may have to forgo the token amount. 

RERA rules

• Under the Real Estate (Regulation and Development) Act, 2016 (RERA), all developers must register their projects with the state’s RERA. 
• Under RERA, a maximum of 10% of the property value can be collected by a developer from a homebuyer as a token money. 
• However, this amount should be kept in an ESCROW account created for the project. Money can be only used to develop the project and cannot be diverted for any other use. 

Do buyer get income tax benefit on token money?

• If the seller runs away after taking the token money or forfeits the money (owing to the buyer backing in the last minute), the buyer cannot claim any tax benefit on the lost money. 
• Under the Income Tax laws, this lost token money will considered as capital loss for the buyer. 
• For the seller, the money earned will be taxed under ‘income from other sources’ and not under ‘capital gains’ even though the money received is towards a capital asset. 

Housing News View Point

When it comes to paying token money for a resale flat, Housing.com recommends that a buyer should complete due diligence and insist on getting details about the token money being documented. As the unit is not RERA registered (unless it’s a new flat which the buyer sells as soon as getting the possession), there is a little possibility that it comes under the purview of RERA. 

FAQs